Tag: RBI

Specify due dates in loan agreements: RBI to banks

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Lenders will have to flag borrower accounts as overdue as part of their day-end processes for the due date, irrespective of the time of running such processes.

The Reserve Bank of India (RBI) on Friday issued a set of clarifications to its prudential norms on income recognition, asset classification and provisioning (IRACP), including directions on more transparent loan agreements and upgrades of non-performing assets (NPAs).

Henceforth, banks and non-banking financial companies (NBFCs) must clearly specify the exact due dates for repayment of a loan, frequency of repayment, break-up between principal and interest, as also examples of special mention account (SMA)/ NPA classification dates in the loan agreement. The borrower shall be apprised of these details at the time of loan sanction and also at the time of subsequent changes to the sanction terms or loan agreement till full repayment of the loan.

“The extant instructions on IRACP norms specify that an amount is to be treated as overdue if it is not paid on the due date fixed by the bank. It has been observed that due dates for repayments are sometimes not specifically mentioned in the loan agreements, and instead a description of due dates is mentioned, leaving scope for different interpretations,” the RBI said.

In cases of loans with moratorium on payment of principal or interest, the exact date of commencement of repayment shall also be specified in the loan agreements. The deadline for complying with this guideline is December 31, 2021 for fresh loans. In case of existing loans, compliance to these instructions will have to be ensured as and when such loans become due for renewal or review.

Lenders will have to flag borrower accounts as overdue as part of their day-end processes for the due date, irrespective of the time of running such processes. Similarly, classification of borrower accounts as SMA as well as NPA shall be done as part of the day-end process for the relevant date and the SMA or NPA classification date shall be the calendar date for which the day-end process is run.

Additionally, the central bank clarified that the instructions on SMA classification of borrower accounts apply to all loans, including retail, irrespective of the size of exposure of the lending institution.

Cash credit/overdraft (CC/OD) accounts are classified as NPA if they are ‘out of order’. The RBI clarified that an account shall be treated as ‘out of order’ if the outstanding balance in the account remains continuously in excess of the sanctioned limit or drawing power for 90 days. Alternately, a CC/OD account will be considered ‘out of order’ if the outstanding balance in it is less than the sanctioned limit or drawing power but there are no credits continuously for 90 days, or the balance in the account is less than the sanctioned limit or drawing power but credits are not enough to cover the interest debited during the previous 90-day period.

In case of interest payments, an account is classified as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. The RBI clarified that in case of interest payments in respect of term loans, an account will be classified as NPA if the interest applied at specified rates remains overdue for more than 90 days. These instructions shall be effective from March 31, 2022.

“It has been observed that some lending institutions upgrade accounts classified as NPAs to ‘standard’ asset category upon payment of only interest overdues, partial overdues, etc. In order to avoid any ambiguity in this regard, it is clarified that loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower,” the RBI said.

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RBI imposes severe restrictions on this bank, imposes Rs 1,000 cap on withdrawals — check details

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It further said the issue of the directions by the RBI should not per se be construed as cancellation of the banking licence.

The Reserve Bank of India (RBI) on Friday imposed several restrictions on Laxmi Cooperative Bank Ltd, Solapur, including Rs 1,000 cap on withdrawals for customers, due to deteroriation in its financial position.

The restrictions imposed under the Banking Regulation Act, 1949, shall remain in force for six months from the close of business on November 12, 2021, and are subject to review, the RBI said in a statement.

As per the directions, the bank shall not, without the prior approval of the RBI, grant or renew any loans and advances, make any investment, incur any liability, and disburse or agree to disburse any payment.

“In particular, a sum not exceeding Rs 1,000 of the total balance across all savings bank or current accounts or any other account of a depositor, may be allowed to be withdrawn,” the RBI said.

It further said the issue of the directions by the RBI should not per se be construed as cancellation of the banking licence.

“The bank will continue to undertake banking business with restrictions till its financial position improves,” the Reserve Bank of India said.

On Monday also, the RBI had imposed similar restrictions on Babaji Date Mahila Sahakari Bank, Yavatmal, Maharashtra.

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RBI data, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India’s ‘One Nation, One Ombudsman’ scheme is part of its strategy to address customer complaints, which have doubled in the wake of a surge in banking transactions due to increased digital adoption. According to RBI data, with increased awareness, digital penetration and financial inclusion, the number of complaints against various regulated entities more than doubled from 1.6 lakh in FY18 to 3.3 lakh FY20.

The integrated ombudsman scheme will be launched by the Prime Minister on Friday along with the scheme for retail participation in the primary auction of government securities. Under the retail G-Secs scheme, individual investors can access the online portal to open a securities account with the RBI, bid in primary auctions and buy & sell securities in the market. No fee will be charged for any of the services provided under the scheme.

The integrated scheme allows customers to file their complaints from anywhere at any time through portal/ email, or through physical mode at one point of receipt, without the need to identify any specific ombudsman or scheme. It will do away with the jurisdictional limitations as well as limited grounds for complaints. The RBI will provide a single reference point for the customers to submit documents, track the status of complaints filed and provide feedback. The complaints that are not covered under the ombudsman scheme will continue to be attended to by the regional offices of the RBI.

The integrated ombudsman scheme is based on a review of internal grievance redressal of banks and other regulated entities.



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Banks want more provisions included as statutory capital, BFSI News, ET BFSI

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Banks have urged the sector regulator, Reserve Bank of India, to relax norms and allow more of the provision made towards unidentified losses to be reckoned as statutory capital.

At present, because of the regulatory cap, only provisions to the extent of 1.25% of the credit risk weighted assets are considered as tier II capital. If rules are relaxed, more funds can be freed up and made available for banks at a time when recovery is firming up and credit is expected to pick up.

On Wednesday, in its monthly economic report, the finance ministry said India is on its way to becoming the fastest growing major economy in the world and forecast a strong possibility of faster credit growth.
“There is a uniform view among banks that due to increased provision burden, the regulatory cap of 1.25% can be removed. We have also approached RBI to either remove the cap or increase eligible percentage so banks will benefit from the additional provisions made by them,” said an executive aware of developments.

As per RBI’s July 2015 circular on Basel III Capital Regulations -Elements of Tier II Capital for Indian Banks, under “General Provisions and Loss Reserves”, provisions held for currently unidentified losses, which are freely available to meet losses that subsequently materialise, will qualify for inclusion under tier
II capital. Accordingly, the general provisions on standard assets qualify for inclusion in tier II capital.

“With expected increase in standard assets provision on account of restructuring of stressed accounts under Covid-19 dispensations, ranging from 5% to 15%, substantial amount of provisions made will not be qualifying as tier II capital because of the cap,” said another bank executive, explaining the demand for removal of the cap on amount of provision reckoned as tier II capital.

Last month in a report, rating agency Crisil had said that gross non-performing assets (NPAs) of banks are expected to rise to 8-9% this fiscal from 7.5% as on March 31, but below the peak of 11.2% seen at the end of fiscal 2018.

“With 2% of bank credit expected under restructuring by the end of this fiscal, stressed assets – comprising gross NPAs and loan book under restructuring – should touch 10-11%,” it had noted in its report.



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JP Morgan, BFSI News, ET BFSI

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A full-scale, multiple central bank digital currency (mCBDC) network could potentially save global corporations up to $100 billion in transaction costs annually, according to a joint research report from Oliver Wyman and JPMorgan.

The report estimates that of the nearly $24 trillion in wholesale payments that moved across borders via the correspondent banking network each year, global companies incur more than $120 billion in total transaction costs. This excludes potential hidden costs in trapped liquidity and delayed settlements. “The case for CBDCs to address pain points in cross-border payments is very compelling. The bulk of today’s wholesale cross-border payments process remains suboptimal due to multiple intermediaries between the sending and receiving banks, often resulting in high transaction costs, long settlement times, and lack of transparency on the status of the payments,” said Jason Ekberg, partner, corporate and institutional banking at Oliver Wyman.

Critical elements

The research specifically outlines four critical elements required for mCBDC implementation, which include (i) the building blocks, from minting and redeeming of CBDCs to FX conversion and settlement; (ii) the roles and responsibilities of central banks, commercial banks, and service providers; (iii) the key design considerations covering data, technology, privacy, and credit extension; and (iv) the governance framework.

Naveen Mallela, global head of coin systems at Onyx, said: “Central banks around the world who are at various stages of CBDC development are considering how to build an infrastructure where systems operate and work together with the necessary controls in place. In this report, we put forward robust design considerations for a successful mCBDC network and demonstrate how it can be practically implemented, using ASEAN corridors as an example.”

Opportunities for participants

Acknowledging that a mCBDC network challenges traditional correspondent banking systems, the report cites opportunities for participants – commercial banks, payment operators, market makers and liquidity providers – to add new capabilities, and welcomes new stakeholders like technology providers and other third-party service providers.

“The development of CBDCs brings new tangible opportunities such as subscription-based mCBDC corridor access or smart contract-enabled cash management services. The ability to pivot effectively and quickly is key, and ultimately we aspire for a cross-border payments system that is transparent, inclusive and efficient for all parties across central banks, corporates, and commercial banks,” Mallela said.



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UPI AutoPay sees robust consumer acceptance

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The UPI AutoPay facility has seen widescale adoption by consumers as the norms for standing instructions for recurring payments of the Reserve Bank of India kicked in from October 1.

Data with the National Payments Corporation of India revealed that there were over 40.3 lakh mandate registrations on AutoPay in October with 39 remitter banks on the platform. A total of 1.33 crore mandates were executed on AutoPay last month.

Also read: UPI hits new record with ₹7.71-lakh crore worth of transactions in October

State Bank of India, HDFC Bank and Bank of Baroda are the top three banks in terms of registration of mandates in October with 13.8 lakh, 4.04 lakh and 3.56 lakh mandates registered respectively with them.

Mandate registration refers to the transaction when the consumer creates a recurring mandate for recurring payments. Execution refers to the transaction when the recurring debit is done on the remitting account.

Sharp uptick

In September too, UPI AutoPay saw a sharp uptick in customer adoption with a 31.43 lakh mandates registered with 35 banks. Over 70.9 lakh mandates were executed on AutoPay in September.

The transactions in October and September were a sharp jump from August when just 17.7 lakh mandates were registered and a total of 33.5 lakh mandates were executed.

The UPI AutoPay services was launched last year for recurring payments. Customers can enable recurring e-mandates on it for payments such as utility bills, entertainment subscriptions, EMI payments, insurance and mutual funds.

A number of merchants including PhonePe, Netflix, Paytm, Gaana, Disney Hotstar, Policybazaar are live on the platform.

Experts and banks had expected it to gain popularity amongst consumers and a surge in card and UPI-based mandates as many payment providers were still in the process of meeting the RBI’s recurring payment norms.

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RBI to directly access banks’ system to prevent PMC Bank, DHFL type scams, BFSI News, ET BFSI

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The Reserve Bank of India has set up a big data centre that can access data from banks’ systems, according to a report. The data centre will help prevent scams like PMC Bank, where data was masked by using dummy accounts. DHFL too had used a similar method to hide borrower accounts and stress.

The RBI is currently working with commercial banks and plans to extend it to urban cooperative banks.

The RBI plans to deploy more analytical functionalities on data from supervised entities to improve the overall functioning of the sector and improve data sanctity, the report said.

The expanded RBI data centre with new functionalities was to be completed in 2020 but was delayed due to Covid, which has now been completed and testing of system-to-system integration has been done with some banks.

PMC Bank scam

A total of 44 ‘borrowal accounts in the Punjab and Maharashtra Co-operative Bank, belonging to HDIL and its affiliates, had been ‘masked,’ with a view to hide these from the core banking system of the bank, the EOW has learnt.

Due to this, the loan default scam perpetrated in the bank over the years went unnoticed during successive audits.

Though access to the other accounts (saving, current or loan) was available to the employees of the bank as well as auditors, access to the aforesaid 44 accounts was masked by using special encrypted passwords.

The masking was done to hide the huge non-refunded personal loans allotted to HDIL promoters, Rakesh and Sarang Wadhwan. The outstanding borrowals in two personal accounts belonging to Rakesh and Sarang Wadhwan amounted to Rs 2008.62 crore and Rs 137.16 crore, respectively.



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Submitted two names for MD and CEO to RBI: Ujjivan SFB

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Ujjivan Small Finance Bank has submitted the names of two candidates to the Reserve Bank of India for the post of Managing Director and CEO. It also expects the amalgamation with Ujjivan Financial Services to be completed in the next 12 months.

Exuding confidence that the worst is over for the lender, Carol Furtado, Chief Operating Officer, Ujjivan SFB said the bank will focus on four key areas.

“We will be focusing on improving our portfolio quality and rebuilding our business volumes. We still want to work a lot more on retaining our talent. And digital will also be a focus area,” she told BusinessLine in an interaction.

Problems aplenty

The lender has seen a lot of attrition, including the exit of its MD and CEO Nitin Chugh earlier this year, and has been facing problems of mounting bad loans.

It reported a net loss of ₹273.79 crore for the second quarter of the fiscal due to higher provisions and lower income. Gross non-performing assets surged to ₹1,712.65 crore or 11.8 per cent of gross advances as on September 30, 2021.

“We have submitted two names as per the RBI requirement within the given timeline. We are expecting a revert from their side,” Furtado said, adding that the bank has also shortlisted people for multiple positions who are expected to join shortly.

“We have a very strong internal leadership team in place who are very well capable of taking the strategy of the bank,” she further said.

Ujjivan SFB is also expecting a much better second half of the fiscal year. “The economy is turning positive and the business seems to be getting better. We have been able to strengthen our collections, we have made adequate provision and our GNPAs have also peaked,” she said.

Disbursements in the third quarter have improved and credit demand has increased.

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CP market: Improving risk appetite needs close monitoring, says Ind-Ra

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Sustained easy money alongside improving risk appetite, as signified by the trend of overall rising number of issuances in the primary Commercial Paper (CP) market, coupled with healthy volumes in the second quarter (2Q) of FY22, requires close monitoring, according to India Ratings (Ind-Ra).

The credit rating agency has noticed certain instances of risks building up in relation to high-rated corporates raising short-term debt to take arbitrage opportunities because of low rates in the CP market.

For India Inc, low-cost CP is preferred route

The risk appetite in the system has improved, particularly in 2QFY22, driven by the strong corporate performance, buoyant external conditions and sustained ultra-loose monetary policy conditions, said Nikhil Changulani, Analyst, Ind-Ra, in a report.

The agency observed that a few large corporates, who have access to CPs at the cheapest cost (sub 4 per cent), are using arbitrage opportunities by increasing the use of CPs and enhanced drawings from some banks, thus opening up risks in the system.

Ind-Ra believes the risks to be presently limited to a few cases; but if not addressed could accentuate and spread to the wider baskets.

CP: market resilient in 2QFY22

Changulani noted that the CP market trend suggests that the market has shown resilience during 2QFY22 amid the uncertain period of the second wave of Covid-19.

“The overall rising number of issuances in the primary CP market coupled with healthy volumes has been the trend. Moreover, the rising number of issuers in a month suggests broadening of the market although there is a concentration risk pertaining to the tenor of borrowings.

Commercial paper issuances by corporates gather steam despite second Covid wave

“The risk appetite in the system has improved, particularly in 2QFY22, driven by the strong corporate performance, buoyant external conditions and sustained ultra-loose monetary policy conditions,” the analyst said.

In September 2021, the number of unique issuers in the corporate and finance segments increased to 74 (69 in August 2021) and 65 (60), respectively. The corporate issuers mopped up ₹73,900 crore (₹60,100 crore) while the finance issuers raised ₹42,900 crore (₹1,07,700 crore).

While the money market rates have remained historically low as a result of favourable environment and assurance from the RBI regarding loose policy stance, Changulani underscored the modest hardening in rates that was visible in October 2021.

Ind-Ra believes a sustained rise in commodity prices worldwide and looming supply-side shortage in various spectrums could pose challenge to the short-term rates.

The report said corporates are emerging from the second wave of Covid-19 and are tapping the CP market positively in anticipation of higher working capital requirement, owing to the high commodity prices coupled with a recovery in capacity utilisation.

IPO financing

The agency underscored that the concentration of issuances in the seven-day bucket is largely due to the initial public offer (IPO) financing in the equity market. On the other hand, three-to-four-month bucket mirrors the nature and origination of fund flows to mutual funds.

Non-banking financial companies (NBFCs) have been gaining the advantage of the excess liquidity and a favourable environment for tapping CP markets to raise short-term debt for financing IPOs, Ind-Ra said.

The months of June, July and August 2021 witnessed heavy activities in the IPO market and many NBFCs were active in funding IPOs.

NBFCs raised ₹59,200 crore in June 2021, ₹1,41,200 crore in July 2021, and ₹1,07,700 crore in August 2021 via CPs.

The agency believes the RBI’s capping of individual borrower’s limit for NBFCs to ₹1 crore for IPO financing would affect the oversubscription of IPOs and reduce CP issuances.

Ind-Ra opined that the spread between banks’ marginal cost of funds-based lending rate and CP rate could remain wide. However, the shorter end of the market rate could start inching up in 3QFY22 based on the expectation (of unwinding ultra-loose monetary policy) from the RBI.

Nevertheless, the wide gap between CP rates and marginal cost of funds-based lending rate will remain a driving factor for more traction by the issuers to tap the CP market in the near to medium term, the agency said.

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Yes Bank plans legal action on police order, BFSI News, ET BFSI

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Yes Bank is understood to be planning legal action against the Gautam Buddh Nagar police order disallowing the private lender from dealing with or exercising rights over shares of DishTV. This is a part of the bank’s attempts to recover loans to the group.

According to legal experts, the bank can seek redressal from the Allahabad HC against the police order. The police have issued a notice under Section 102 of the Criminal Procedure Code, which gives them power to seize property that is allegedly stolen or there is reasonable suspicion. The notice was issued on a case based on a complaint by Subhash Chandra, chairman of Essel Group. The FIR is understood to have been lodged in September 2020.

The private bank, which is the largest shareholder in DishTV with a stake of over 24%, has sought to oust the management. The bank had acquired a stake in the broadcaster after invoking a pledge on shares that were offered by the Essel Group promoter. The pledges were invoked after the promoter defaulted on its loans. The Essel Group, which has come under stress, had managed to extract a standstill agreement from other lenders. Yes Bank has continued to pursue recovery and moved a resolution to sack CEO Jawahar Goel and other independent directors.

However, last Saturday, DishTV informed the stock exchanges that the UP Police have issued a notice to the bank asking it not to deal with DishTV shares or exercise any rights in respect of them.



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